9911796707
TMI Blog1984 (11) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... business. These proceedings, were, however, not continued because the assessee obtained a stay order from the Bombay High Court on a writ petition which was withdrawn on 30th Aug., 1974. The proceedings were resumed in 1975. In the course of proceedings, a specific query dt. 4th Aug., 1977 was made by the ITO to which an affidavit dt. 8th Dec., 1977 of the aforesaid Shri Khubchand was filed. Shri Khubchand was assessee's uncle and was also a partner in the aforesaid Bombay firm. The assessee had executed a general power of Attorney in his favour to avail of his services for the purpose of the assessee's Hong Kong business. In this affidavit a reference was made for the first time to a balance-sheet of the assessee's Hong Kong business as on 30th April, 1959. It was the contention of the assessed before the ITO that the assessee's previous year has, throughout been ending on 30th April and the amount of 3,57,000 Hong Kong Dollars shown in his credit in the capital account in the balance-sheet as on 31st March, 1959 did not represent the assessee's capital but was the expected price of certain goods purchased by the assessee and belonged to the creditors. Regarding the balance-sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. So far as the evidence is concerned his argument in substance is that the assessee's explanation is absolutely unbelievable and false. He has pointed out that the affidavit of Shri Khubchand referring to the balance-sheet as on 30th April, 1959 was produced at a much later stage i.e., in 1977 and he contended that it was produced at a time when the assessment proceedings for 1960-61 had become time barred. He has also pointed out that for the asst. yr. 1960-61 that balance-sheet was not shown. Relying on the decision of the Gujarat High Court in CIT vs. Drapco Electric Corporation (1978) 34 CTR (Guj) 181 : (1980) 122 ITR 341 (Guj), he has argued that the explanation to s. 271 (1)(c) of the IT Act, 1961 is only a rule of evidence and that it would be applicable in the assessee's case also. He has pointed out the passage in the judgment of the Gujarat High Court in the case of Kantilal Manilal vs. CIT (1980) 18 CTR (Guj) 378 : (1981) 130 ITR 411 (Guj) which begins "now it requires to be emphasised and ends cannot be invoked in aid of the assessee". That passage in substance distinguishes the decision of the Gujarat High Court in the case of CIT vs. Bhatt, S. P. (1974) 97 ITR 440 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 5. Now in this case the balance-sheet as on 31st March, 1959 was found which was the starting point of the reopening proceedings. It did show the amount of 3,57,000 H. K. Dollars in the capital account of the assessee. This balance-sheet and the capital account therein have not been denied by the assessee. What he has tried to do is to explain it. Therefore we have to consider that explanation. This Tribunal has consider that explanation in detail in its order dt. 22nd March, 1980. The most important paragraphs thereof are reproduced below: "17. From the facts stated above, it is evident: (i) that the explanation of capital account has all along been that it represented unpaid price of Indian goods remitted by Singapore Office to Hong Kong Office and only on 8th Aug., 1977, the claim that it included within it two loans also was made for the first time; and (ii) neither the Singapore balance-sheet nor the bank statements of Singapore and Hong Kong offices were shown to prove actual remittances from Singapore to Hong Kong and vice verse to prove the assessee's claim that the money's came from Singapore and remitted back afterwards as ultimately the documents were ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proving concealment of income and it can be said to have, for a rational mind, a probative or persuasive value in the matter of the proof of such concealment." Therefore, whether the Explanation has retrospective application or not, such a large gap as in the assessee's case between the assessed income and the returned income is a consideration of such importance that the burden of proof that there was no concealment, would be on the assessee. The decision of the Gujarat High Court in the case of Vinaycand Harilal would not be applicable because the said Explanation to s. 271(1)(c) is applicable here. Apart from that if the amount of 3,57,000 HK Dollars found in the capital accounts is not income of the assessee, what else could it be? All the facts which could explain it would be in the possession of the assessee. He has given an explanation which cannot be believed. Therefore, we are left with only one inference that it was the income of the assessee. We have also considered the other authorities cited by the assessee's counsel. The balance-sheet ending April, 1959 was produced as late as in 1977, by Shri Khubchand who had sated that after the proceeding has been re-sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) show that the proceedings regarding this concealment have been started on the basis of first return filed on 26th July, 1960 which is before the present Act came into effect. It is the law in force at the time when that return was filed which has to be applied. The amount of penalty has to be determined on that basis. The matter is, therefore, restored to the file of the ITO to re-calculate the amount of penalty according to law. The appeal is allowed for statistical purpose. 12th October, 1984 B. C. MITRA, A.M.: On a careful consideration of my ld. brother's order, I regret, I am unable to agree with the conclusions arrived by him on account of the following reasons. 2. Penalty in the instant case has been imposed under s. 271(1)(c) of the IT Act, 1961 by invoking the provisions of the Explanation which came into operation w.e.f. 1st April, 1964. The CIT(A) upheld the action of the ITO by relying on the Gujarat High Court decision in the case of CIT vs. Drapco Electric Corporation (1978) 34 CTR (Guj) 181 : (1980) 122 ITR 341 (Guj). My ld. brother while consideration the ratio of the aforesaid decision of the Gujarat High Court, observed in paragraph 18 of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 271(1)(c) was very much in existence on the Statute Book. In that case, the IAC, in course of the penalty proceedings, was of the view that the assessee's case was governed by the substantive provisions of s. (1)(c) of the IT Act, 1961, and in the alternative, that the Explanation to the said section as the incomes returned was less than 20 per cent of the assessee income. The Tribunal took the view that the IAC erred levying penalty on the basis of s. 271(1)(c) r/w the Explanation. Further, the Tribunal by following the decision of the Supreme Court in the case of CIT Anr. vs. Anwar Ali (1970) 76 ITR 696 (SC) set aside the IAC's order of penalty by observing that no penalty could be levied under s. 271(1)(c) by merely rejecting the explanation in regard to certain cash credits considered in the assessment. The Revenue aggrieved by the decision of the Tribunal sought a reference under s. 256(1), but the Tribunal refused to draw up a statement of the case. The Revenue thereafter moved the High Court under s. 256(2) and the Tribunal was directed to refer to the Hon'ble High Court the following question of law: "Whether, on the fact and in the circumstances of the case, the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1964. On the question, whether the Explanation had retrospective operation to cases governed by s. 271(1)(c) prior to its amendment in 1964, the High Court did not express any opinion. The relevant observation of the High Court at p. 361 reads as follows: "No decision has been pointed to us where a view has been taken that the Explanation enacts a rule of substantive laws and not a rule of evidence. However, there are three decisions where it has been clearly ruled that the Explanation enacts a rule of evidence. In Saeed Ahmad vs. IAC (1971) 79 ITR 28 (All) the Allahabad High Court, in the Hajee K. Assainar vs. CIT (1971) 81 ITR 423 (Ker) the Kerala High Court and in CIT vs. Patna Timber Works 1975 CTR (Pat) 25 : (1977) 106 ITR 452 (Pat) the Patna High Court, have taken the same view which we have taken herein as regards the nature and character of the Explanation. It is true that the Kerala High Court, though it has taken the view that the Explanation enacts a rule of evidence and is, therefore, a part of the procedural law, it cannot still be applied to cases governed by s. 271(1)(c) as it stood prior to its amendment by the Finance Act, 1964, because the procedural amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee with the filing of his return for the asst. yr. 1959-60 on 26th Feb., 1960. 6. Now coming to the merits of the ITO's penalty order, the assessee's ld. counsel ponited out at the time of hearing of the case that except in the ITO's penaltly order, nowhere it was mentioned that the explanation furnished by the assessee in regard to the capital intorduced in the assessee's Hongkong business was false. In this connection, he referred to the CIT(A)'s order in the quantum appeal dt. 27th March, 1979, wherein the CIT(A) observed that "the source of capital has not been satisfactorily explained." Reference was also made to the observations of the Tribunal in paras 11, 18, 19 and 20 of their order dt. 22nd March, 1980. It was pointed out that the Tribunal upheld the addition of Rs. 2,85,600—being the amount equivalent to 3,57,000 Hongkong Dollars credited in the assessee's capital account as reflected in the Balance Sheet of his Hongkong/Singapore business as on 31st March, 1959. on the ground that the assessee failed to furnish "acceptable evidence" in proving that ht accounts for the assessee's Hongkong/Singapore business were made up to a date other than 30th March, 1959; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that in accordance with the substantive provisions of s. 271(1)(c) as it stood before its amendment by the Finance Act, 1964, penalty under s. 217(1)(c) could not be imposed merely on the ground that the assessee's explanation in regard to the source of the credit entry in the balance sheet pertaining to his Hongkong business was not found to be acceptable by the Department. In the circumstances, the CIT(A) was justified in cancelling the penalty imposed by the ITO under s. 271(1)(c) of the Act. 1st November, 1983 STATEMENT UNDER S. 255(4) OF THE IT ACT, 1961 K. R. DIXIT, J.M.: There being a difference of opinion amongst us, the matter is referred to the President under s. 255(4) of the IT Act, 1961, in respect of the following: "Whether, on the facts and in the circumstances of the case, the penalty for concealment of income can be imposed in this case?" 12th November, 1984 V. BALASUBRAMANIAN, VICE-PRESIDENT (AS A THIRD MEMBER): The plethora of facts, arguments and reasoning at the assessment, appellate and penalty stages in this case present a confused situation. The facts, however, are simple though uneloquent. 2. The assessee-individual was a partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee beyond reasonable doubt. According to him: "the explanation of the assessee is not only unsatisfactory but is unbelievable. In this case there is positive evidence in the shape of balance-sheet disclosing the capital amount of 3,57,000 H K Dollars. This balance sheet has been owned up by the assessee." Before the Tribunal it was argued for the assessee that he was under the impression that it was to necessary to show income of the Hongkong business in India. the Tribunal had merely mentioned that the assessee's explanation was not "very" satisfactory which showed that the additions was confirmed merely o the ground that the explanation was not found to be satisfactory. A claim was also made that the penalty was imposed based on the Explanation to s. 271(1)(c) of the IT Act. There was no actual concealment. Other grounds raised relate to the non-applicability of the Explanation to s. 271(1)(c) to the present case where the first return was filed prior to the coming into force of the IT Act, 1961. The ld. Judicial Member rejected these contentions. According to him "whether the Explanation has retrospective applications or not, such a large gap as in the assessee's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation was gathered as to the existence of the Hongkong business. The assessee has thus suppressed a source of income altogether. The Balance Sheet indicated a clear capital belonging to the assessee of 3,57,000 HK Dollars. The Business Sheet seized indicted the position as on 31st March, 1959. Subsequently the assessee produced a Balance Sheet as on 30th April, 1959 raising the doubtful question as to whether this Balance Sheet was in existence and was among the papers seized at the time of the raid or not. In fact, according to the ld. counsel, the Tribunal had to address itself to a "strange phenomenon" of the Balance Sheet as on 30th April, 1959 not being discovered by the raiding party but subsequently produced by the assessee as having been amount the papers noted at the time of the raid. The Balance Sheet of April, 1959 filed by the assessee after nearly 9 years of the raid was clearly a fabrication. Certain documents were produced by the assessee only at the later stages of the gearing which also indicated manipulation and fabrication of evidence. In a matter of this type the circumstantial evidence has to be considered. The Department cannot prove with conclusive evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be under the 1922 Act. The burden was on the Department to show that the assessee had earned income and suppressed the same. The assessee has given complete details, the copies of the accounts of the parties, etc., to show that what was termed as the assessee's capital in the Balance Sheet merely represented as claimed by him the purchase price of goods. The assessee was not responsible for the Enforcement Branch not taking out the Balance Sheet as on 30th April, 1959 which was on record. For the assessee's business abroad the accounts were closed on this date. A Balance Sheet was prepared as on 31st March, 1959 for the purpose of securing bank loans. The assessee had suffered a loss in the foreign business. Under the mistaken impression that the foreign loss would not be taken in to account in working out his total income the assessee did not claim it. In fact he would have been benefited if he could correctly have claimed it the Indian Return. In fact as a result of the loss abroad, the assessee closed down his Hongkong business in 1961 and returned to India after his short sojourn abroad in February, 1961. The assessee went to Hongkong in 1958, started the business style ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Embassy there have been produced. The assessee has also requested the IT authorities to examine these parties on commission through the Embassy in Phillipine. Even if it could not be done at the time of the assessment on account of non-availability of time, certainly the Department could have examined them before levy of penalty. The statement of the foreign parties, therefore, given in an Affidavit supported the assessee's case and could not have been rejected by the Department without disproving them. 10. Even the addition, according to the ld. counsel, was based on surmises and presumptions. Even the Tribunal, which upheld the additions, did so, since, according to it, the explanation was not very satisfactory. The assessee had given a reasonable explanation, given the full details of the parties, the remittances made by them, etc. A reconciliation of the balance Sheet as on 31st March, 1959 and 30th April, 1959 was also given. Referring to para 6 of the order of the ld. Judicial Member, it is pointed out that the view taken by the Member is contradictory in itself. The ld. counsel has referred to several decisions to support him both on the merits of the case as also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties in India and also maintained an account with the Hongkong office, doubt was expressed as to how the exact amount owed by the Singapore Branch to the Indian parties could be incorporate as 3,57,000 H. K. Dollars. Another point urged was that at the time of the search a Balance Sheet as on 30th April, 1959 was not discovered but this was produced only subsequently. According to the ld. counsel for the Department the normal presumption would be that the balance shown to the debit of the Singapore office account would take care of the remittances. Even if the assessee reacquired amounts at Hongkong only lump sum amounts would be received from Singapore and not the exact amount owed to certain parties in India. Here again both credits and debits would be adjusted in the account. 13. In my view none of the above points made out by the ld. counsel for the Department goes against assessee's claim if one considers the elementary principles of accountancy. The assessee's stand appears to be simple. As the details above mentioned show the assessee was in India for all time before he left for Hongkong in 1958 or so. Apparently he had no money either abroad and has not taken any from I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apore books. There would be sales, etc., and other transfers of money from Singapore to Hongkong and vice versa. Whether these transfers are in lump sums or not, neither the assessee's taking into account a capital of 3,57,000 H. K. Dollars in the Hongkong books, nor the payment to the India's parties after the sale of the goods at Singapore be wrong or fabricated entries as the ld. counsel for the Department has suggested. Where is the question of amounts being physically taken from Singapore to Hongkong and back as seriously suggested by the ld. Departmental counsel ? The one Balance Sheet and the P L A/c which is the basis of all the controversy shows sales of nearly Rs. 6 lakhs. Apparently in addition to the receipts from India of goods, there have been other sales. It is not impossible, therefore, that there is a regular running account between Hongkong and Singapore with regard to the business. In fact the Hongkong account shows a clear outstanding amount of Rs. 1,90,000 from Singapore. It is unfortunate that these simple entries common in any business should be categorised by ld. counsel for Department as fabrication and made the basis of the addition and again levy of pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the capital account. In other words, why believe only positive 3,57,000 H. K. Dollars but not a negative Rs. 21,000? 16. The ITO has not estimated any business income from abroad. The P L A/c shows sales of about Rs. 6 lakhs and all that has been done about it is to disallow the loss of Rs. 21,000 and odd from the business. The assessee has been doing business abroad. If full and satisfactory verifiable accounts are not maintained, the ITO is certainly entitled to make an estimate of income by adopting a net profit. On a turnover of Rs. 6 lakhs if he had estimated say at 10 per cent a profit of Rs. 60,000 no objection could be taken to it. This he did not do. On the contrary on what, as above discussed, would indicate was a misconception as to what the capital account so called represented he added a sum of Rs. 57,000 H. K. Dollars as the income from other sources of the assessee. What I want to emphasise is that instead of estimating a business profit which he might have done because of the assessee's weakness, the ITO disbelieved a plausible explanation explainable by elementary accountancy and made an addition of a huge amount as income from other sources. 17. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the despatches are said to be substantial parties at Bombay. I am not, therefore, quite sure that it cannot be unequivocally stated that the addition itself of income from other sources is justified. On the contrary no income under the head "business" is estimated which would have been the normal thing if detailed and verifiable accounts are not available. 19. The above discussion shows that not even a Prima facie case of fabrication of evidence or manipulation of accounts could be laid on the assessee. The ITO in his penalty order has stressed-this is stressed by the ld. Departmental counsel before me also-that all circumstantial evidences pointed out to a guilty mind. Not indicating any income from the foreign business in the Return filed, not even bringing out the existence of a business abroad, etc., have been referred to as important facts in this connection. The assessee's explanation is that he had a loss from the foreign business and that was why ultimately the foreign activities were even closed and the assessee returned to India early in 1961. Whatever be the correctness of this assertion, no penalty is attracted of a business or a source of income in a Return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us on the assessee in the present case to show that what was not his income was not included in the return filed not on account of any fraud, wilful negligence, etc. It is not that the mere existence of a difference of 20 per cent between the assessed and the returned income by itself and automatically attracts a penalty. If that be so, the section would have straightaways said that, the Explanation would be attracted only in a case where the addition arises on account of an includible income not being included on account of conscious default, wilful negligence, etc. The Explanation also, therefore, cannot justify the levy of penalty in the present case. The penalty levied has been correctly cancelled by the CIT(A). I, therefore, agree with the decision of the ld. Accountant Member. 22. The matter will now go back to the Bench which originally heard it for proper disposal according to law. 6th Feb., 1985 ORDER UNDER SECTION 255(4) OF THE IT ACT, 1961 Order BY THE TRIBUNAL: In this case because difference of opinion between the two members, the following question was referred for the opinion of the Third Member: "Whether, on the facts and in the circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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